IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “B” : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA.No.1536/Hyd/2014
Assessment Year 2010-2011

ACIT, Circle-1, Kurnool (Appellant) vs Mr. Mohammed Suhail, Kurnool (Respondent)
Date of Hearing : 05.02.2015 Date of Pronouncement: 13.02.2015

ORDER

PER B. RAMAKOTAIAH, A.M.
This is a Revenue appeal against the Order of the Ld. CIT(A)-IV, Hyderabad dated 11.07.2014. Revenue has raised 5 grounds out of which, ground Nos.2 to 4 are material which are as under :

2. “Whether Ld. CIT(A) is correct in law in holding that the liability to deduct tax ceases the moment the appellant obtains PAN and cannot be considered to be reinstated on a subsequent non-compliance with the provisions of section 194C(7) of the Act, in view of the fact that both the sub-sections are falling under the same section 194C and are to be read harmoniously and are to be read together.

3. The Ld. CIT(A) failed to appreciate the fact  that mere compliance to the provisions of the section 194C(6) do not absolve the assessee from discharging its onus to submit the PAN of the contractors obtained to the appropriate authority.

4. Ld. CIT(A) failed to appreciate the fact that the provisions of section 40(a)(ia) as per which the onus of assessee will be treated to have been discharged only when he deducts and remits  tax  to Government Account and on same analogy, the benefits of provisions of section 194C(6) will be available to assessee only when he complies with the provisions of section 194C(7) of the Act.”

2. Briefly stated, assessee is an individual deriving income from export of iron ore to various countries. Assessee filed its return of income for impugned assessment admitting total income of Rs.1,15,06,755. In the course of assessment proceedings, A.O. noticed that assessee had incurred total transport charges on iron ore of Rs.4,50,60,353. A.O. asked assessee to furnish details of deduction of tax at source under section 194C of the Act on the transport charges paid to three different transporters viz., M/s. Vinayak Transport, Khaleel Transport and M/s. Mobin Logistics. Assessee made TDS of Rs.6,83,500 on amounts paid to M/s. Khaleel Transport. With reference to other two transporters, assessee submitted that parties concerned furnished PAN and therefore, TDS was not required to be made in accordance with section 194C(6). On the reason that assessee has not complied with provisions of section 194C(7) and further assessee was not covered by the provisions of section 44AE and further holding that assessee should have deducted tax under section 194C(1), A.O. disallowed an amount of Rs.4,43,76,853 under section 40(a)(ia).

3. Before the Ld. CIT(A), assessee filed detailed submissions mainly contending that provisions of section 194C(6) override the general provision of section 194C(1) and since assessee has obtained PAN of the transporters, there is no need to deduct any TDS as per provisions of the Act. Further, it was submitted that notification by the Board to whom the details are to be submitted in the form of statements was issued on 15.10.2010 applicable for F.Y. 2010-2011 i.e., A.Y. 2011-2012 and not to the impugned assessment year.

3.1. Ld. CIT(A) accepting the  contention  of  assessee discussed the issue elaborately and held as under:

“4.5 I have considered the facts on record and the submissions of the AR. Sec.40(a)(ia) applies when 'tax is deductible at source' from any payment made by an assessee. Whether or not the tax was deductible at source from the payment made to the transporters is to be discerned from sec.194C.

4.6 Sub-sections (6) and (7) of sec.194C provide that:

"(6)  No  deduction  shall  be  made  from  any  sum credited or paid or likely to be credited or paid during the previous  year to the  account of  the contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the  person paying or crediting such sum.

(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorized by it, such particulars, in such form and within such time as may be prescribed. "

Sec.194C(6) provides exemption from the application of sec.194C if the condition specified therein is fulfilled, namely, that the appellant obtains the PAN of the transporters concerned. The liability to deduct tax ceases the moment the appellant obtains the PAN of the contractors concerned. That liability cannot be considered to be reinstated on a subsequent non- compliance with the provisions of sec.194C(7).

4.7 There is no dispute that the  appellant had obtained the PAN of the three parties concerned. By virtue of this fact, it had no liability to deduct tax paid to the three transporters and consequently, was not liable to any disallowance u/s 40(a)(ia).

4.8 The Assessing Officer has also invoked sec.44AE to suggest that the transporters in question did not qualify for the benevolence of sec.194C(6). The Assessing Officer has observed that sec.194C(6) applies only to those transport operators to whom sec.44AE applies, that the three transporters in question did not own any trucks, that the number of trucks engaged by them on hire was more than ten and that for both these reasons, sec.44AE did not apply to them.

4.9 Sec.194C(6) refers merely to payments to 'a contactor during the course of business of plying, hiring or leasing goods carriage'. There is no reference to sec.44AE in sec.194C(6) itself. The reference to sec.44AE has been made in Explanation (ii) to sec.194C which merely defines the term 'goods carriage' with reference to Explanation (a) of sec.44AE. The mere fact that the meaning assigned to the words, 'goods carriage' in sec.44AE has been imported into sec.194C(6) does not mean that sec.194C(6) applies only to those persons to whom sec.44AE applies.

4.10. Even otherwise, sec.44AE applies to an assessee who is engaged in plying, hiring or leasing of trucks and who owns not more than ten goods carriages. The Assessing Officer has observed in his order that the three transporters did not own any trucks at all. It is possible that the three transporters had engaged more than ten trucks on hire. However, sec.44AE  refers  only  to  ownership  of  trucks  as  a condition. The number of trucks hired by the parties is of no consequence to the application of sec.44AE. Therefore, even if the Assessing Officer's interpretation of sec.194C(6) with reference to sec.44AE were to be accepted, sec.194C(6) has to be held applicable to the appellant on the facts of the case.

4.11 In view of the above, the disallowance of Rs.4,43,76,853 u/s 40(a)(ia) is set aside. The appeal is allowed on this issue.”

4. After considering the rival submissions and perusing the submissions and notifications issued in this regard, we are of the opinion that there is no need to deviate from the order of Ld. CIT(A). Even though new provisions were introduced and assessees were made liable to deduct tax on the payments made to transporters, provisions of section 194C(6) gives exemption to the persons not to deduct the amount, in case they obtain/furnish the PAN. Assessee has complied with these provisions. Therefore, there is no need to deduct any tax and disallowance under section 40(a)(ia) does not arise. Even though it was stated in sub section (7) that person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed Income Tax Authority or the person authorised by it, such particulars in such form within such time as may be prescribed, this provision  was not made applicable for the impugned assessment year as the relevant notification was not issued immediately. In fact, the Board has given notification on 15.10.2010, which was made effective for the forthcoming second quarter statement due on 15th October, 2010. Since CBDT itself has issued notification in a later year, assessee’s contention that in the impugned assessment year, no such prescribed authority was stated has to be accepted. Even otherwise, as rightly pointed out by the Ld. CIT(A) provisions of section 194C(6) are independent of section 194C(7). Just because there is violation of provisions of section 194C(7), disallowance under section 40(a)(ia) does not arise, if assessee complies with the provisions of section 194C(6). In view of this, we do not find any merit in Revenue appeal.

5. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open Court on 13.02.2015.

Sd/-                                                      Sd/-
(SAKTIJIT DEY)                        (B.RAMAKOTAIAH)
JUDICIAL MEMBER              ACCOUNTANT MEMBER